The Engine of Inequality: Privilege

This is what we’re up against: a status quo that has institutionalized soaring inequality and rising poverty as the only possible output of defending the privileged few at the expense of the many.

We all know wealth/income inequality is soaring. I’ve published many entries on this topic (please see the three charts below as a refresher), and it’s clear there are multiple sources of rising inequality: globalization and technology, which concentrate gains in relatively few hands, and inflation, which reduces the purchasing power of stagnating real wages.

But the dominant source of inequality is privilege–specifically, privilege that is institutionalized by the status quo.

The word “privilege” is tossed around rather loosely. What does it mean in economic and social terms? I differentiate between privilege, which is unearned, and advantaged, which is earned.

To reverse rising inequality, we must dismantle the institutionalized power of privilege and create universally accessible pathways to the advantages of building capital. A key part of my analysis is causally linking rising inequality, poverty and privilege.

Here is an excerpt of the book:

What Is Poverty?

That poverty is the lack of the material necessities of life is self-evident. The problem with this definition of poverty is that it naturally leads to the idea that the solution to poverty is to give people either material necessities and/or money to buy them. But this transfer is not a systemic solution to poverty, for it is based on a faulty understanding of poverty.

To understand poverty, we must first understand that an economy can be distilled down to two systems: ownership of income streams and the distribution of those income streams. Income flows from productive assets, i.e. the engines of wealth/value creation. Net income is simply the surplus between the cost of production (the inputs) and the value of what has been produced (the output).

There are various means of distributing this net income to participants in the economy: wages paid by owners of an income stream, income earned by individuals who own an engine of wealth, profits paid as dividends by owners of income streams, and wages paid by the State (i.e. government) from tax revenues collected from private income.

Productivity is a measure of how much output is generated from inputs. While there are various measures of wealth, the kind of wealth that matters in solving poverty are the engines of wealth that can be made more productive with investment, knowledge and innovation.